The Financial Ins and Outs of Starting a Catering Business

An experienced caterer can make up to $25 an hour. And, even better than that, they get to be their own boss.

How do you land this dream job? By starting your own catering business.

While that might sound like a daunting task, starting a catering company is much easier than starting other types of small businesses. It comes with low overhead and thus, low starting costs.

In this article, we’ll teach you the financial ins and outs of starting a catering business.

Make a Detailed Budget

This might seem pretty obvious, but a surprising number of small business owners skip this step. But not you. Get out a pen and paper and start making a budget.

This is also the point where you determine whether or not starting a catering business even makes sense for you. Although a catering business is relatively cheap, the costs do add up, and you can expect to need at least $10,000 in order to start. Unfortunately, that’s more money than a lot of would-be caterers are able to invest.

Of course, that number will vary from situation to situation. The only way to determine your budget is to sit down and write it out. So let’s begin.

What are Your Costs?

Let’s look at the potential costs one at a time.

Permits

To start a catering company you’re going to need permits. You’ll be dealing with food, so not only will you need business permits, but you’ll need food handling permits as well. And, if you want to serve alcoholic beverages, you’ll need a liquor license.

All of this costs money. Not only do you need to pay for the permits themselves, but you’ll need to pay for inspector visits, and you may even need to pay to attend a safe food handling class.

Do some research on your local business and food handling laws to get an idea of costs. No matter where you live, you’ll probably have to pay at least a couple thousand dollars in permits.

Location

While you’re investigating and processing your permits, you should also be looking for a commercial kitchen where you can do your catering. Some restaurants rent out their kitchens when they’re closed, and some companies offer full-service kitchens for rent 24-7.

Many people prefer to run their catering businesses out of their house. However, this isn’t always a good idea.

First of all, many municipalities don’t allow it. But, even if it’s legal where you live, running a catering business out of your kitchen means you’ll need to repurpose your home kitchen into a commercial kitchen. This will include spending a lot of money on new equipment and construction.

And, while we believe you’ll succeed, some catering business do fail. And you don’t want to be left with a commercial kitchen in your house afterward.

A good rule of thumb when starting a catering business is to avoid investing in physical equipment at all costs, at least when you’re starting. This will keep you flexible in case something goes wrong.

As we were saying, once you find your location, add the cost of rent to your budget. And don’t forget about utilities. Rent and utilities will easily be another few thousand dollars.

Equipment

Look for used (but not overly used) equipment. You’ll probably want to go with gas-cooking equipment as it’s a little more durable and simple.

And, once again, don’t buy more than you need. Equipment may be hard to sell in the future.

Your goal should be to buy used, quality equipment, that’s still under warranty. You don’t want to have to replace anything down the road.

Take your time shopping around, and tally up all your equipment costs before you buy anything.

Staff

If you only plan on taking small orders, you might be able to start your catering business without any employees. But, to take advantage of all that space and equipment you’ve invested in, you eventually want to hire a staff and take on big catering orders.

In the beginning, we recommend you pay your staff on commission. You won’t know how many orders to expect and a fixed salary might be too much. Once your business really gets rolling, you can switch over to a salary system.

Insurance

As with any small business, a catering business needs to be insured, especially because you’re dealing with potentially dangerous equipment.

In fact, there is a specialized type of insurance called catering insurance. It will cover any injuries that happen at your events along with things such as property damage lawsuits and copyright infringement. You should expect to pay between $425 and $500 a year for catering insurance.

Advertising

You won’t get very many clients if no one knows about your business. So don’t forget to factor advertising into your budget. Advertising can include anything from Facebook advertising to radio advertising.

Food

This is the most obvious expense. If you don’t have food, you don’t have a catering company.

This cost will also vary greatly depending on what you plan on catering. Take some time to write out your recipes and the quantities you expect to make them at. Write down all the ingredients and all their costs.

Shop around for a good wholesaler in your area. Along with rent, staff, and insurance, food is your most consistent cost. That means that saving money here will save you a lot of money in the long run.

Time

You won’t start your catering company overnight. It takes a lot of time and hard work. And, even when it’s up and running, it will probably take a while before you really start to see consistent business.

Make sure you set aside enough money to pay for your time. You probably won’t have time for another job, but you’ll still need to eat.

Starting a Catering Business

Now you know the financial ins and outs of starting a catering business. So get to work and draw up your budget. If it looks affordable then go for it!

If you found this article helpful, check out our business blog to learn much more about running a successful small business.